Fiscal sustainability
Anchored by the fiscal rules we set at Budget 2022, we remain committed to returning the operating balance before gains and losses (OBEGAL) to surplus within the forecast period and keeping net debt below a ceiling of 30 percent of GDP. This commitment is supported in Budget 2023 through a combination of savings (to reduce spending), reprioritisation (to redirect funding from one activity to another), and integrity-enhancing measures to the tax system.
The Fiscal Strategy Report 2023, from page 59, sets out in more detail the Government’s fiscal strategy for Budget 2023 and the years ahead.
Savings and reprioritisation
$4 billion total operating of savings and reprioritisation has been used to provide further room for new spending in Budget 2023 and to top up the Climate Emergency Response Fund.
Significant reprioritisation of existing funding includes:
- $280 million total operating from reducing funding set aside for Fees Free tertiary education, used to offset new spending at Budget 2023, and
- $385.8 million total operating from the COVID-19 Health tagged contingency (while still leaving enough to support our COVID-19 response for this winter), used to offset new spending in Budget 2023.
The Government has also recently refreshed its priorities to focus on the issues most important to New Zealanders. This has also yielded significant savings:
- $364.7 million total operating from stopping the TVNZ/RNZ merger (and total capital cost of $306.1 million)
- $585.1 million total operating from stopping the Clean Car Upgrade Scheme and the Social Leasing Scheme Trial (which has been returned to the Climate Emergency Response Fund), and
- $500 million total operating from the refocused Water Services Reform Programme.
Revenue
Budget 2023 supports fiscal sustainability through improving the integrity of our tax system, by bringing the trustee tax rate into line with the top personal bracket. The change will increase tax payments by trusts and help ensure that the top marginal tax rate applies more comprehensively to individuals with annual incomes over $180,000. The change includes an exemption for trusts dedicated to supporting people with disabilities. It will come into force on 1 April 2024, after enabling legislation has been through a select committee process.
The increased trustee tax rate is expected to raise $1.1 billion total operating over the forecast period. The change supports fairness, economic efficiency and wellbeing. More information about the Government’s revenue strategy is provided in the Fiscal Strategy Report 2023, on page 71.